Will Eastern Europe Trigger a Financial Meltdown?

We’ve commented from time to time that a possible financial flashpoint is countries that got themselves in the same fix as Iceland , of having a banking sector engaged in the generally risky practices that were standard form recently, and was outsized relative to the economy (Willem Buiter also points out that that precarious situation is made worse by having your own teeny currency).

While Ireland is in that position, a more immediate trigger for trouble is Eastern Europe. We’ve mentioned in particular the precarious position of Austria, which was a big lender to the region. As Ambrose Evans-Pritchard remarks in the Telegraph:

Austria’s finance minister Josef Pröll made frantic efforts last week to put together a €150bn rescue for the ex-Soviet bloc. Well he might. His banks have lent €230bn to the region, equal to 70pc of Austria’s GDP.

“A failure rate of 10pc would lead to the collapse of the Austrian financial sector,” reported Der Standard in Vienna. Unfortunately, that is about to happen.

The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc. The Vienna press said Bank Austria and its Italian owner Unicredit face a “monetary Stalingrad” in the East.

Mr Pröll tried to drum up support for his rescue package from EU finance ministers in Brussels last week. The idea was scotched by Germany’s Peer Steinbrück. Not our problem, he said…..

Yves here. Recall we said a few days ago (based on admittedly a small number of conversations, but the Austrian and German businessmen were knowledgeable) that the Austrian banks were widely known to be bankrupt, that Austrians knew they needed to be rescued and would need help. The Austrians were highly confident that Germany would fund a bailout, and the Germans were mystified that the Austrians were so certain. The Germans’ doubts appear to have been well founded. Back to the piece:

Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay – or roll over – $400bn this year, equal to a third of the region’s GDP. Good luck. The credit window has slammed shut….

“This is the largest run on a currency in history,” said Mr Jen.

In Poland, 60pc of mortgages are in Swiss francs. The zloty has just halved against the franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this story. As an act of collective folly – by lenders and borrowers – it matches America’s sub-prime debacle. There is a crucial difference, however. European banks are on the hook for both. US banks are not.

Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. En plus, Europeans account for an astonishing 74pc of the entire $4.9 trillion portfolio of loans to emerging markets….

Whether it takes months, or just weeks, the world is going to discover that Europe’s financial system is sunk, and that there is no EU Federal Reserve yet ready to act as a lender of last resort or to flood the markets with emergency stimulus….

Erik Berglof, EBRD’s chief economist, told me the region may need €400bn in help to cover loans and prop up the credit system….

The sums needed are beyond the limits of the IMF, w…We are nearing the point where the IMF may have to print money for the world, using arcane powers to issue Special Drawing Rights.

Its $16bn rescue of Ukraine has unravelled. The country – facing a 12pc contraction in GDP after the collapse of steel prices – is hurtling towards default, leaving Unicredit, Raffeisen and ING in the lurch. Pakistan wants another $7.6bn. Latvia’s central bank governor has declared his economy “clinically dead” after it shrank 10.5pc in the fourth quarter…

“This is much worse than the East Asia crisis in the 1990s,” said Lars Christensen, at Danske Bank.

This is looking ugly indeed, and that’s before you consider that European banks are on average much more leveraged than their US counterparts.

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  1. bg


    very provacative and particularly informed.

    Why do you think the day of reconning will be weeks or months? This isn’t really new news, except for the precipitating factors, such as the inability to roll debt, or having to mark deliquencies.

  2. Paul Hodgson

    Yves: You deserve a Pulitzer Prize for the supreme journalism that NC represents.

    Ambrose’s article sure does give cause for some sombre reflection, to say the least.

    Yours, In total awe and admiration of your efforts and clarity,

    Paul Hodgson, Canberra

  3. Anonymous

    In Poland, 60pc of mortgages are in Swiss francs.

    That’s insane. Polish jokes aside, how can so many people fail to grasp the concept of currency risk?

  4. Cnothing4


    Quick question – I’m only a novice on these matters, but something has been bothering me for a while about why we’re haven’t gone down the Swede route here in the states (aside from the reasons being talked about). Back when AIG was nationalized I remember there being a lot of discussion about the amount of collateral damage that would be dealt on the banks across the channel should one or more of the major US banks fail/go under government ownership. What are the chances that the nationalization trigger hasn’t been pulled here because of the chance that it would adversely affect the remaining London, Swiss, and German banks given the pain they are already in and the fact that the EU doesn’t have an adequate means of handling the potential for handling that much damage?

  5. artichoke

    Echoes of WWI ? This is the region where that started, granted the politics are different, but again a tinderbox.

    Not a prediction, just a thought.

  6. artichoke


    I’m not Yves but I think there is truth in what you are saying. By truly American standards (of the type I grew up with in the 60’s) we would have thrown the banks overboard already. All this talk that this offends American sensibilities is imho hogwash.

    It’s global forces that are pressuring us to bail out the banks. That’s why Obama, to whom they all communicate, is facilitating it, but Congress, especially the House of Representatives, is resisting patriotically.

  7. IF

    My girlfriend is Bulgarian. When I visited two years ago I thought the whole thing would hit the wall soon. It has taken its time. I don’t think anything good will come out of this. And I tried warning her family. I think they finally listened. They are in reasonable position. But it is sad to watch this process, knowing there are many very poor people in the country living off 100 bucks a month. I am scanning the news every few days. Still, Bulgaria has been doing better than feared by me. Ah, and I am German. I told an Austrian friend many months ago that his home country was toast. He was oblivious. We will see. The problem with Germany is, that everybody in the EU seems to expect a Germans bailout for themselves. It is hard to see why the Germans would do this. They have their own hands full (HRE is a 100 billion Euro hole). And separately, from what I read the Germans did finance the exports of the past years. But they did finance them in their own currency, unlike the Chinese. It will take quite some convincing to get the Euro diluted or the debt written off. Not impossible. Maybe if they see that they have to chose between the EU and the Euro. But this could take a few years.

  8. Lune

    I think any analysis of what’s going to happen needs to break down 3 categories of states:

    1) Countries within the Eurozone (i.e. using the Euro as their currency such as Austria)

    2) Countries within the EU but not yet integrated into the Euro (e.g. Poland)

    3) Countries not within the EU (e.g. Ukraine)

    For the countries in group 1, I think your Austrian friends were actually right. I can’t see how Germany won’t be forced to bail out the Eurozone. I’m sure they won’t like it, but the choice will be between that or seeing the Euro cease to be a functional currency after half its member nations and most of its financial institutions default on their euro obligations. Faced with that choice, Germany will, I expect, swallow hard and start writing checks.

    Group 2 may or may not be bailed out. Although many of these states are forced to maintain a Euro peg for their currencies via the European Exchange Rate Mechanism, the obligation to defend those currencies lies largely with the host nations and not the rest of the EU. Whether these countries get cut loose will likely depend more on European political goals (i.e. how important is the process of European integration, and especially of the integration of Eastern Europe? At what price?) rather than strictly economic considerations.

    And for those in group 3, good luck begging the IMF…

  9. Anonymous

    In the crisis of 2001 in Turkey total household debt to banks was less than 5 billion USD. Now it is around 100 billion. Despite tricks of debt consolidations and shifting the burden to another family member more than 2 million people have already defaulted.

    One of my friends who happens to be a savy trader made a trip to Poland and he was simply shocked by the amonut of indebtedness. He warned his Polish friends about the downside risks in capitalistic systems.

    And guess who financed all this utter lunacy?

  10. Minh

    Polish home owner are hoping for a crash of Swiss frank. How likely is that before the zloty crash ? It’s really insane now, race to the bottom.

    I remember when the USSR collapse, Vietnamese govmint paid back the debt of Russian weapons sale during the Vietnam war in rubble, which was something like 1/10 of the value in term of gold when the credit was made.

  11. Cnothing4


    I don’t know if I’m within a mile of the target, but the current talking point explaining why we haven’t gone farther with public ownership than we already have – political willpower – doesn’t make any sense to me.

    The current administration suffers a lot more the longer this crisis goes on for. Taking an unpopular move now that ultimately restores our banking sector and with it the US economy before the next election should more than make up for the immediate hit in public opinion. And, if it actually works, the Democrats can use it to counter the a lot of the current moderate and right-wing positions on government influence over the private sector(which the public still largely agrees with, hence the popular opposition to the latest stimulus package).

    The only reason why they haven’t already gone ahead and attempted a larger nationalization, under any name you want to call it, that actually makes sense is if they expect it to do more immediate harm than everyone else in the popular press/blog-sphere is currently talking about. They have the votes to get something like that through congress, it’s very unlikely that the public wouldn’t support them, there’s a very good chance that it would ultimately be successful,… the list goes on. Hence, there has to be something that I’m missing on this.

  12. artichoke

    Well … I don’t think Barack Obama went in three years from Illinois State Senator to President of the United States without a lot of help from powerful friends. Perhaps those powerful friends don’t want the banks to be left to wither on the vine.

    Chicago politicians know who their friends are. As do non-Chicago politicians by the way.

  13. Swedish Lex

    A key sentence in the article is this one: “Mr Pröll tried to drum up support for his rescue package from EU finance ministers in Brussels last week. The idea was scotched by Germany’s Peer Steinbrück. Not our problem, he said…..”

    As long as the Germans continue consider that this is not their problem and that each EU/euro state should look after its own problems, only, the problems will deepen. Willem Buiter has proposed a 3 trillion common EU resource that in his view would be the minimum of what the EU will need to fix this. I agree. The French made attempts in this direction end of last year, not gaining any traction with the Germans however.

    So why are the Germans acting like this if they are in it as much as any other EU state and, hence, would also need a concerted (and expensive) EU effort? There are German federal elections coming up later this year. AHA! European politicians will normally only win national elections on national issues while citizens on election day normally do not care much about the EU. In fact, if a Government is perceived as spending too much time/resource on non-national matters, they will normally be penalised by the electorate.

    Therefore, Germany may be expected to continue to act politically in ways that make most/only sense if looked upon through the lens of national politics. The rest will have to wait. The German situation is of course also complicated by the fact that the two main opposing parties SPD and CDU run the coalition Government together. Hence, increasingly difficult to govern sensibly when your main political opponents are your own governing partners.

    In addition to the national politics, however, I cannot avoid having the impression that the German Government continues to be in denial about how deep the country is in the quicksand with the rest of the world.

    For the EU to work, it sorely needs the Franco/German partnership to be on track, in addition to have competent people at the helms of the EU Institutions. Sarkozy knows this, of course, but his personality and leadership style will put a strain on any relationship.

    There is thus a risk that Germany will continue to behave in ways that will not be conducive to a coherent EU response to the crisis until October, assuming that there is a clear, unequivocal, election result that will allow the new German Government to begin ruling with the long-term approach that is necessary.

  14. jagorev

    Paul Hodgson: I am pretty sure that copying and pasting in its entirety an article from an actual journalist does not qualify one for a Pulitzer prize.

    By the way, to anyone interested in following events on the peripheries of Europe, I cannot recommend A Fistful of Euros highly enough. Most of what is published on that site is original analysis and insight – and it is mostly of exceptional quality.

  15. poszi

    Why Poles took mortgages in Swiss francs? It’s simple: lower interest rates, hence lower monthly payment (“howmuchamonth” is not just an American phenomenon).

    To nitpick Polish zloty has not halved against the franc but lost a third of the value (franc rose from 2 PLN to 3 PLN). The people who took Swiss franc mortgages are lucky that the CHF Libor crashed and the monthly payment barely increased. They are severely underwater now but they think it is temporary and still can afford the payment. In fact, the delinquency rates are still very low but it may be early to tell. Rising of the unemployment or further rising of the franc may change the picture.

    Poles who took mortgages are heavily indebted but huge majority is debt-free. Moreover, the banks are not so heavily leveraged. The housing bubble insanity was severe but short and not so many people were put into enormous indebtedness. It is going to be difficult but maybe not as bad as the article suggests.

  16. aw70


    I agree with what you are saying – the European problem really is split into three different categories. The Eurozone will try to stay afloat, the non-Euro EU members are worse off, but have a chance… and some of the non-EU countries of the former East (such as the Ukraine) are very probably, well, completely screwed (there is not point in embellishing this).

    As to what Ambrose Evans is saying: this is partly true, but also partly drivel. AEP is one of the breed of anglo-american “economic experts” who hates the EU with a passion, and who revels in the possibility of the EU failing. And who takes every possible opportunity to poke at that institution. I cannot understand why he is so keen on that – maybe he thinks that Britain will get something positive out of a failure of the EU? Nor do I understand why anyone outside Britain actually listens to this guy. Especially since he is very good at ignoring the fact that the British economy is just as screwed, and that’s without actually having done anything useful with the missing money (such as re-building Eastern Europe after the fall of Communism).

  17. Paul Hodgson

    So, jagorev at 3.47am:

    “I am pretty sure that copying and pasting in its entirety an article from an actual journalist does not qualify one for a Pulitzer prize.”

    So is this what you are saying Yves’ contributions consist of?

  18. Mihael


    I agree 100% with you. You just have to read the end of this piece to understand that. AEP writes: “Germany contracted at an annual rate of 8.4pc in the fourth quarter. If Deutsche Bank is correct, the economy will have shrunk by nearly 9pc before the end of this year.”

    The truth is that in year 2008 German economic growth slowed to 1.3pc because Germany contracted 2.1 pc in the fourth quarter and analysts fear the German economy could contract as much as 2.2 in 2009 (I believe that they will do much better than that as industrial inventories shrunk sharply in the last quarter).

  19. Anonymous

    I said ‘warring’ once and someone took issue with it. It’s not the working class of the world I worry about it’s their governments or maybe banks that can control their governments (you don’t have to look far for an example).

    Every time factional reserve banking reaches its limits warring ensues. Something to do with liquidating the overstock to create demand. Overstock could be defined in a couple different ways, debt being one of them.

    History is a good guide.

  20. rkka

    Indeed, all the West’s best, most enthusiastic political projects are well and truly screwed. The Baltics and Ukraine were profusely praised in the pages of The Economist, and held up as examples for benighted Russians to follow, and now look at them, bankrupt.

    Russia is in trouble too, there is no question. However, please sketch out a course of action the Russian government could have begun ~1999 that would have prepared Russia better for the collapse of the global financial system in less than a decade than the one Mr. Putin has chosen.

    Clearly the vast sums the Russian government carefully taxed away from the Oligarchs after Mr. Putin broke their power was invested better than the over-leveraged Oligarchs would have done if they were left in their hands.

  21. Jojo

    February 15, 2009
    Rise in Jobless Poses Threat to Stability Worldwide

    PARIS — From lawyers in Paris to factory workers in China and bodyguards in Colombia, the ranks of the jobless are swelling rapidly across the globe.

    Worldwide job losses from the recession that started in the United States in December 2007 could hit a staggering 50 million by the end of 2009, according to the International Labor Organization, a United Nations agency. The slowdown has already claimed 3.6 million American jobs.

    High unemployment rates, especially among young workers, have led to protests in countries as varied as Latvia, Chile, Greece, Bulgaria and Iceland and contributed to strikes in Britain and France.


  22. Thomas

    Quoting the Telegraph article:

    Austrian banks lent 230 bn €, and a failure rate of 10 % would lead to the collapse of the Austrian banking sector, it says.

    Austria’s economy is roughly 10 % of Germany’s economy in size. 23 bn € of losses to Austrian banks is equal to 230 bn € of losses to German banks. The funds and guarantees committed by the German government for HRE, Commerzbank and the Landesbanken has already reached a similar magnitude and will probably have to grow further.

    So why should Germany assist Austria with its problem, if Germany already has a similar size problem and is expected to shoulder it on its own?

  23. esb

    … a “monetary Stalingrad.”

    The snipers are loading their rounds. pfffft. Ouch.

    With a little bit of luck I can pick up a “cottage” on Lake Geneva simply by relieving a dumb-ass cross-border lender of the maintenance requirements.

    One can only hope.

  24. MarekNYC

    Poles used CHF loans because they had far lower rates. Add in the performance of the zloty in recent years and they felt safe. Is it really more insane than the Brit or US conviction that home prices would keep on soaring?

  25. Anonymous

    To be fair to those of us in Poland with CHF mortgages, even after such a collapse of the zloty our payments are still LOWER than if we had borrowed an equivalent amount in PLN. Currency risk aside, the difference in interest rates is around 3%. Makes a wee difference.

    Poland’s getting a bad rap when comparing it to other Eastern Europe countries. The level of indebtedness really isn’t that high, the banks are profitable and on sound footing despite the storm gathering around them (see PKO BP – the big state-owned behemoth – or AIG Poland, soon to be sold off because it is *gasp* profitable and problem-free), and while the housing bubble did come here too most people didn’t go as overboard as in the states.

    What’s most interesting is that Poland is bucking the trend with regards to public spending. The government is looking to slash budgets (almost 20 bln PLN) and raise taxes, and it looks as though this crisis is providing an excuse to initiate the politically near-impossible reforms necessary in the pension and health care sectors. I have a suspicion that Poland may weather the storm comparitively better than any of the countries bordering it (small comfort, indeed).

  26. Anonymous

    There is a storm brewing and it is going to cause a crash in the government bond market.

    The 1931 crisis which ironically was also caused by a systematic failures in the Austrian bank system did not have that result.

    I think Ambrose Evan-Pritchard, like most of the Europhobes at the Telegraph, has got it wrong way ways round in their analysis of the EU and this shows up in contradictions in their articles. They hate the idea of political union within Europe but at the same time tacitly admit that one of the main problems that the EU has in dealing with the economic crisis is a lack of pan European institutions with the political power to tackle the issues. In fact the whole European experiment has been doomed from the start because it has been based on the false premise of economic union first and political union second. The lessons of history would suggest that to succeed the process needs to be the other way round. Political centralisation happens first and the economy is intergrated later. This is the model on which nearly all the European nation states were built in the first place.

  27. Minh

    I cannot understand why he is so keen on that – maybe he thinks that Britain will get something positive out of a failure of the EU?

    Nice comment, I may add my own 2 cents. This is the war of words, because the value of money in a fiat regime is a manifestation of belief, not of real substance especially in this period of massive bankrupcy. As such the US-UK coalition has an advantage over non english speaking countries.

    Except China though, because the Chinese has build a great wall in term of finacial resources ($1.95T and growing) and shield off any speculation over the value of the remenbi. As long as the war of words and the bankrupcies continues, no real economic activities can emerge in the US or Europe.

  28. Richard Kline

    So Anon of 5:46: “In fact the whole European experiment has been doomed from the start because it has been based on the false premise of economic union first and political union second. The lessons of history would suggest that to succeed the process needs to be the other way round. Political centralisation happens first and the economy is intergrated later. This is the model on which nearly all the European nation states were built in the first place.” No you are mistaken there. There are instances of (formal) economic union preceding political union. The German Customs Union of the 19th century is the explicit model being used for the growth of the EU. Political unions which preced economic unions tend to be highly frangible because separate ‘sections’ have strategies which are at best divergent and at worst competitive. Failure is much higher this way.

    I would in fact go so far as to advance the hypothesis, I wouldn’t call it a presumptive conclusion, that _informal_ economic convergence at least and often effective union typically precedes political unions which last. An interesting example in that regard is India. The sub-continent had NEVER had a common political government in its entire history prior to the British occupation, but the Brits economically welded the country together so firmly that it has stuck together since independence in all defiance of historical precedent and is arguably making goal of union.

    To the extent to which the evolution of the EU could be faulted, the problem is that they have gone too slowly. But then there are a lot of footdragers, like, for example, the Little Englanders at the Telegraph. The other major mistake of the EU, to me, was a too rapid expansion into Eastern Europe. This was down for political reasons, to snatch the territory from Russia while the latter was weak and antipathy to recent Russian tyranny, wholly justified, was still raw and fresh. But there was no way that such extensive areas, substantial economies, and large populations could be effectively integrated into the larger union which itself was a constant work in progress. I don’t think the ‘Eastern Grab’ will kill the EU, but we see the kind of ‘blast enhancement’ which has resulted. The good news is that now one is talking war, and the means for such are negligible anyway: they’ll have to muddle through, and, who knows?, a better solution may result. Nothing like a good ‘socking,’ according to word verification.

    It is east to grasp why the Deutsch are keeping their purses zipped and their lips pursed for now; it’s a failed policy, and they will be dragged off it by circumstance, yes. And yes, probably when it becomes clear that both the euro and the EU enter into real jeopardy if they continue to stiff their partners. What they should be doing, really, is considering what concessions they want from the other member states for the Deutsch coming on-board for a joint action plan. That should be the Franco-Deutsch strategy; Sarko is to ‘big’ in everything from his ego on down, and Merkel is too small to fit in any picture, so they’ve had a devil of a time getting to a middle position. Oh well, history in action, this is what it looks like: sausage being killed.

    And Lativa . . . that country’s economy has been clinically dead since c. 1990 when they severed themselves from their prior integrated economy. They’ve lived on ex-pat remunerations and foreign loans since. Now they are sitting out there in the cold light of dawn: independence, hello!

  29. Kevin de bruxelles

    Evans-Prtichard mentions Swedish banks are again in trouble only fifteen years after the “Swedish miracle” that many (myself included) are touting as a roadmap to follow. There is perhaps a lesson to be learned here. Bailing out banks just enables even more irresponsible lending. Saying that Germany has to bailout Austrian banks is to implicitly say that Austria is to big to fail, which is exactly the mentality the greedy Austrian bank directors were counting on when they chose the path of reckless loans and huge bonuses over the path of sustainable and prudent issuing of credit. How long would it be before the lessons not learned due to a morally hazardous bailout turn into yet another orgy of Austrian lending and crisis.

    What is missing in all this bailout talk is pain. The only thing that will lead to long term economic stability is some serious pain, such as being experienced in Iceland right now. The Swedish miracle may ultimately be judged as curing the symptom (insolvent banks) too quickly and painlessly while allowing the disease to flourish. Societal antibodies against credit orgies were not given the time to kick in. As a result, the disease is still with Sweden and once again talk will be about bailing the system out. Hopefully they will be less efficient this time, and will suffer Icelandic-style pain, and that a culture of prudence will be allowed to develop and ultimately devour the culture of free-wheeling credit splurges.

    In this light, the inability of the EU governmental institutions to bail out their banks may in the end turn out to be a blessing. Real pain needs to be felt. Reckless banking practises need to be lobotomised from the collective financial culture in Europe. Just as the Great Depression in America led to 40-50 years of sustainable economic growth, the coming pain in Europe will hopefully serve as a similar catalyst for future stability.

    Of course one should never forget that this “pain” that I so casually mention can also lead to fascism or war. So it must be managed, on a country by country basis, and not allowed to run rampant. For example savings account should be protected as much as possible. But trying to avoid the pain all together, such as by helping actors who issued or accepted foolish loans by way of some bailout financed by Germans will only make the situation worse.

  30. Chris

    Back in the late summer early fall you trailed after EP’s stories and ignored news from Europe.

    Now you seem to be puffing EP again while Brown’s ‘successes’ and ‘leadership’ from the fall collapse around him.

    While EP rants about Eastern Europe the City of London seems to be descending into a new leg down on the road to Iceland.

    One wonders how much TARP money the UK got via the AIG bailout and what they did with it.

    One wonders if ‘wee gordie’ will make it to All Fools Day and chair his own G20 summit.

    How about a bit more discrimination, regard for the facts, and non-conventional views? EP is about as conventional as you can get, has complete disregard for facts (Polish mortgages in CHF, how many for Chrissake, over what time frame, what portion of Poland’s total mortgage indebtedness?)and is as close to substantial coverage as smoke coming off a blue cheese).

    But it is Sunday, and it is fun to put out shark bait on a nice balmy morning. Good luck to you.

    I thought Spielberg would have done a lot better if he had called the movie EP, don’t you?

  31. Anonymous

    Pullitzer, my butt. I can read a news article, paste it on my blog, and call the news ugly, too. But, I have some respect for others’ intellectual property.

  32. Bourning Markets

    I’m with aw70 and Michael above. I’ve learnt to take the nonetheless interesting AE-P/Telegraph analysis with a grain of salt.

    Now, Yves is among my favourite sources, hard and good working blogging. (No comparision with AE-P intended at all :) But about this item:
    …that’s before you consider that European banks are on average much more leveraged than their US counterparts.

    This info may be misleading, one of those raw numbers that somehow make their way through our newspapers, blogs etc and stay without us as a bug. (I run a blog myself and have echoed the same mistake on it as well as other, usually reliable sources still are doing).

    But the US and UE acountability rules are different. See Bank regulators can’t agree on leverage calculation By the same standard, leveraging in both sides of the Atlantic get closer. In my view, those on UE are more reliable, or at least more strict, so in a way US banks were more leveraged than usually reported.

    Not that the emergent lending is not a global threat with two european epicenters: the eastern (Austria-Germany) and the latam one (Spain). And that could drive a second-round-crash. But anyway we should check the figures.

    Also from Telegraph the $25 Trillion… Total emergent lending of $4,9 T, assuming 100% default rate… Where those $25T come from? Uhmmm…

    Just thinking.

  33. Dan Duncan

    Richard Kline writes:

    “To the extent to which the evolution of the EU could be faulted, the problem is that they have gone too slowly….The other major mistake of the EU, to me, was a too rapid expansion into Eastern Europe.”

    So…did the EU move too slowly or too rapidly? Not following this.

    Also written is this:

    “No you are mistaken there. There are instances of (formal) economic union preceding political union….An interesting example in that regard is India. The sub-continent had NEVER had a common political government in its entire history prior to the British occupation, but the Brits economically welded the country together so firmly that it has stuck together since independence in all defiance of historical precedent and is arguably making goal of union.”

    Are you really saying that the British occupation of India was really just an economic welding?

    The only reason the Brits were able to weld a previously subdivided continent’s economies with such rigidity was military/political dominance first. Your description of Brits in India as “The British Occupation” supports the prior sentence.

    And finally….in your discussion of “economic convergence and India” as an example of economic union preceding political you cite, the German Customs Union of the 19th Century (as a counter example and as demonstration of the problems associated when political precede economic) with the following: “Political unions which preced economic unions tend to be highly frangible because separate ‘sections’ have strategies which are at best divergent and at worst competitive.

    Nowhere have I read a more apt description of the bureaucracy of India in relation to the functioning of its economy.

  34. bb

    has anyone looked into the fact that european companies fund themselves with debt rather than equity which is preferred in the u.s.?
    any comparison on the full recourse vs. no recourse loan provisions?
    has ambrose gone to poland (or anywhere else in eastern europe) to note that there is not one local name that has expanded in the past 10 years, all is western european businesses setting up operations and owing that debt to western european banks?
    any comparison of the strikingly different fiscal policies between the east and the west?
    any notion that the baltics, the czech republic and bulgaria are de facto eurozone members via their currency pegs?
    but it is easier just to ring the panic bell how europe will disintegrate and britain will be the only country left standing: with half of its population working already for the government: no fx, no gold, no savings, just loads of obligations to pension plans.

    cheers ambrose.

  35. Timo

    Maybe it is due the fact most of former enemies of glorious British Empire are in the same monetary union: Spain, Holland, France and even Germany. ;)

    Ambrose’s readers include also a lot of yanks and aussies who think they are so much better than those slow “old europeans”. Euro cannot possible succeed, according to them.

    According to Ambrose, first it was those Club Med countries cowardly bailing out of the euro, then it was Germany getting tired of Club Med and now it is the loans to the Eastern Europe that will break apart the eurozone. Always with the same tired old agenda.

    Maybe Ambrose should concentrate on UK economy that will be probably in much worse shape than even during Great Depression. IMF is coming into town and soon…

    Hollowed out manufacturing base, overgrown service and especially financial sectors, big-time housing bust plus a weird multicultural experiment with open doors to everybody. Gonna be interesting times….

  36. Don

    The important point of Evans-Pritchard’s post is that he sees the social disruptions and dislocations that can arise from this crisis. Oddly, many people are assuming that this crisis is business as usual. Had the government’s actions been better, that might have been the case, and we still might avert massive unemployment. But we are getting dangerously close to the point in Debt-Deflation that the cure will be nearly as awful as the malady. Employment in that scenario will be much worse than it is now. Then ,all bets are off.

    Don the libetarian Democrat and follower of Edmund Burke

  37. DocG

    It’s all too clear that we have crossed a Rubicon, all of us, and are headed for a truly spectacular and unprecedented outcome. You can hash over the various details endlessly — in fact a great many of the media articles, TV commentaries, blog posts and commentaries, etc., make fascinating reading — but there is clearly no way the vaunted “financial system” is going to survive this debacle.

    This need not be a total disaster, however, as I am trying to make clear in my blog Mole in the Ground (http://amoleintheground.blogspot.com/).

    The latest post begins as follows:
    The complete self-destruction of our monetary and financial systems would be a lot like the process by which cancer is usually treated through chemotherapy. The power of the oligarchs who have ruled us, both covertly and overtly, for so many years will, like the cancer cells, be destroyed. As with chemotherapy, which attacks both malignant and healthy cells alike, a great many innocent people will also be damaged in the same process. But, as with an effective cancer treatment, what is good for the organism as a whole can be nourished back to health — but only after what is harmful has been completely eliminated.

    I’m eager to get some feedback on my views from knowledgeable economists like so many posting here, and am hoping that some of you will take a look at what I’ve written — and comment. Thank you.

  38. Anonymous

    The real question is what is vital to Germany? What is it the PIGS make that Germany needs? I mean needs in a material sense as an industrialized country? The PIGS make nothing. It’s why they’re PIGS running gargantuan government and trade deficits.

    What Germany needs first is natural gas, oil, coal and raw materials. This is followed by markets and “security”. Here again, intimate relations with the PIGS is contraindicated. The PIGS have little of any of that. This is irrespective of whether the PIGS are in southern Europe, southern Manhattan or the City of London.

    What Germany needs economically is found in Russia, not in PIGS. Contrarily what Russia needs at this point (leading edge industrial technology and talent that can retool Russian industry) is found in Germany. Both have broad common strategic interests.

    I think AEP is a superb journalist. I also think the United Kingdom itself is a failed society and failed state. Like all of us AEP has certain prejudices. And as an employee he has owner editorial policy to meet.

    This may (or may not) have caused him to skip over a Berlin-Moscow axis and default to a nebulous “world policy makers” solution for eastern Europe. First it’s “EU” and then when that fails try “G7”, “G20” or “Davos”.

    A Drei Kaiserbund between Berlin and Moscow is the most probable outcome of partial or total euro/EU collapse.

    Just because certain quarters don’t want this outcome doesn’t mean it’s impossible or even unlikely. The geographic, historic and cultural facts of life greatly favor this practical result ahead of others.

    (Note to Richard Kline: the discrediting of international finance capitalism will not automatically recredit international socialism. You seem to be assuming this outcome. Int’l socialism’s own failures are too recent and memories are too sharp among its victims, which include all Russians and many Germans.)

  39. Advant Guard

    If Austrians lend money to Poles to buy German products, why should the Germans bail out the Austrians. It’s better to watch German unemployment climb to 15%.

  40. Anonymous

    >>If Austrians lend money to Poles to buy German products, why should the Germans bail out the Austrians. It's better to watch German unemployment climb to 15%.<<

    Why do the Germans need an "Austrian" factotum? Or rather why do they need "Austrian" subsidiaries of "Italian" banking conglomerates and other unnamed third parties to finance their trade?

    If I were a German with quality tangible goods to trade to Poles I'd provide the Poles post-bankruptcy financing in exchange for Polish labor, coal or even sovereign land.

    And I'd let the "Austrian" and other third party banksters shove their rotten paper you-know-where.

    I fully realize that if you're Sonja Kohn or another – ahem -"Austrian Banker" such a "bailout" at someone else's expense makes perfect sense. It's a bum deal for the German producers though.

    Allowing some parasite third country shylock to rake off 50% for "services" that consist solely of flipping rotten paper is an inefficient way to promote German full employment.

    It's just not with it any more. The internet is promoting direct producer-consumer dealings.

  41. Pawel D

    Just to get the facts right:

    (i) Foreign currency loans make up 45% of household debts.

    (ii) The zloty depreciated about a third vs the Swiss Frank and 40% vs the dollar.

    (iii) As Swiss and US interest rates have decreased much faster than Polish rates the net effective of forex loans vs. Polish zloty loans is on the average in the order of several hundred zloties per month — most households can deal with it.

    Also note that Polish families are somewhat different from US and some West European families — if the kids get into trouble the are likely to get cash from a wider kin network – parents, grandparents, etc.

  42. dearieme

    So why should Germany assist Austria with its problem? Perhaps if the price is right? Anschluss?

    I doubt whether France would be willing to give up Alsace or Lorraine. I don’t know whether there’s any of Denmark left that Germany might want. I know that there are a few loonies who might like parts of Poland back.

    Anyway, my point is that some national borders might not survive a bad enough depression. How many Chinas will there be? How many Belgiums? Who will rule San Diego? Oh dear, oh dear.

  43. Eugen

    Some related facts about Romania

    Snippets from post of Claudiu Cercel Adjunct BRD Director Romanian bank controlled by Societe Generale

    Sorry, it is in romanian:


    Romanian external debt: 74 Billions Euro
    Short refinancing needs 10-15 Billions Euro
    Central bank Reserves (BNR) 28 Billion Euro

    Over 70% of hard currency credits are Euribor indexed
    EURIBOR average issued at: 4.00%
    · EURIBOR actual: 1.98% cost reduction over 50%
    · Average local currency in euro when credit issued 3.50
    · Current actual: 4.30 (Local currency depreciated 23%)
    Alsovery low bank

    There is very little bank intermediation going on in Romania

    The (lack of) leverage is also telling:
    Ratio of credits to deposits: 130% and 80% if one includes non-resident deposits (hot money a good chunk of it)

    There are more listed arguments but the conclusions are plausible:

    1. The credit crisis has lesser impact on Romania compared to other countries (of Eastern Europe, but presumably also in Western Europe, US)

    2. Many financial analysts use mechanical analysis (methods and tools) of questionable adequacy in the current crisis

  44. Anonymous

    Let’s hope so the cure for a depression is a depression, one can take the slow boat or dive off the roof top the sooner we get there the sooner the recovery can begin.

  45. Anonymous

    So why should Germany assist Austria with its problem? Perhaps if the price is right? Anschluss?

    Prices are always lower after bankruptcy at the liquidation auctions. Before bankruptcy you have failed leaderships still trying to conceal their failures and consequently pricing the same assets higher.

  46. Anonymous

    Here’s a fun exercise…

    But a stupid one. Why don’t you re-analyze the state-by-state spending in per-capita terms?

    Oh dear, oh dear.

    Oh, get a grip.

  47. Timo

    Export oriented Germany actually benefits hugely having Club Med countries in eurozone. It prevents euro skyrocketing against other currencies. So it is not all bad…

    In the old days Club Med would have already heavily devalued their currencies and interest rates/inflation would have skyrocketed all around.

    Today the situation is much more stable and beneficial to all parties included. It is only the Anglos who are continuously talking about the demise of euro for this or that reason….

    Well, tough luck. You Brits did not accept the euro and now you have to face the dire consequences….

  48. Anonymous

    AEP comes here and comments from time to time (did so the last time Yves featured one of his articles). He obviously is aware of this and does not have a problem with it.

    And I find the sniping about what constitutes fair game in blogging to be tedious and petty. Go read the big econ blogs like Thoma or DeLong. They often quote entire articles. Most authors want to be read more widely and are pleased to get greater visibility.

  49. Anonymous

    No you are mistaken there. There are instances of (formal) economic union preceding political union. The German Customs Union of the 19th century is the explicit model being used for the growth of the EU. Political unions which preced economic unions tend to be highly frangible because separate ‘sections’ have strategies which are at best divergent and at worst competitive. Failure is much higher this way.

    I am not sure history really supports your claim. The history of Germany since the creation of the Zollverein has been troubled at best with periods of totalitarian rule and constant changes in the countries borders. By contrast the ancient nation states of Europe such as France and England achieved more or less their current configuration as the result of politically centralising monarchies. The most successful and long lasting political and economic union in Europe was the Roman Empire which was created by political fiat and military force. Economic integration literally followed the armies

  50. Anonymous

    Timo said…

    Export oriented Germany actually benefits hugely having Club Med countries in eurozone. It prevents euro skyrocketing against other currencies. So it is not all bad…

    An excellent point, which is often overlooked on this subject.

    Without the other countries acting as a break on the Euro, Germany’s exporters would be in an even worse position than those in Japan.

  51. doc holiday

    I hate being so damn late here, but they say it is best to be late than never:

    The Irish Troubles: G7 Needs to Act Now

    Re: Credit-default swaps on Irish government bonds rose 7.5 basis points to 355, and have jumped 95 basis points this week, according to CMA Datavision prices. Contracts linked to French, German, U.K and Spanish debt also rose to all-time highs.

    The perceived risk of holding Irish debt soared the most after the government said it will invest 7 billion euros ($9 billion) in Allied Irish Banks Plc and Bank of Ireland Plc to cushion a rise in bad debts as property prices plunge. Europe’s economy contracted the most in at least 13 years in the fourth quarter, the European Union’s statistics office said today.

    “The more governments intervene the more we risk sovereign credit deterioration,” Jim Reid, head of fundamental credit strategy at Deutsche Bank AG, wrote in a note to investors today. “The biggest risk in 2009, in our opinion, remains that we see a run on a major sovereign.”

  52. Hubert

    Several Comments:
    1) 1700 bn? I cannot fathom how they arrive at this figure. Probably through bank assets controlled by WE parent companies. If parents let go these bankrupt they lose their equity and the lines they have financed.
    2) The best thing would be to cut the lines and suffer the losses; let these countries devalue. Understandably the banks instead look for stupid money (IMF) to bail them out. Latvia, Ukraine, Hungary – they use this, to get back some money before inevitably Eastern local capital flies and currencies implode. IMF bought them some time.
    The Eastern Europe subs will sooner or later blow up as soon as local deposits start to run into Cash Euro or gold or whatever.
    3) Swedish Lex is right: Any bailout will have to wait after German elections. By then though the whole range of losses in the german banking system will be more clear (higher). Thomas figures (up to 230bn german banking losses alone from Landesbanken, HRE and Commerzbarnk ) are right and yes, they will grow. The economy is infected now and “normal” losses will show up. At the same time tax revenues will go down dramatically. I do not see where Germany will find the money for this enterprise.
    4) Unicredito has much losses to share. Most of them in Austria, some in Italy and Germany. You might guess that they will play some games with their EE subs; banking regulators in Germany should nationalize HVB before it happens, not afterwards.
    5) Default rates 10-20%? Oh, it will be much much worse. I heard some lending anecdotes and I would guess 20% to be the minimum. Some incredible stupid and/or corrupt things happened there – it might very well be 30 or 40% losses.

  53. Anonymous

    Export oriented Germany actually benefits hugely having Club Med countries in eurozone. It prevents euro skyrocketing against other currencies. So it is not all bad…

    There is no question this vast mass of non-producing parasites (and insufferable arrogant blowhards) holds down Euro valuations. The question is whether working Germans paying 50% to 60% marginal tax rates might be able to figure out another method to keep their currency’s exchange rate in balance.

  54. Carlomagno

    The numbers quoted is AEP’s article don’t seem right. You can get a geographical breakdown of loans granted by Austrian banks from the European Central Bank via this link: http://tinyurl.com/dj2pb6.

    The bulk of lending to Eastern Europe will be contained in columns 1, 2, 7 and 8 (this leaves out Slovenia, but given the size of the latter’s economy it can’t make a material difference). Assuming that all or most of the loans in columns 7 and 8 are to the former Soviet Union (Russia and Ukraine especially), which no doubt overstates Austrian banks’ exposure to Eastern Europe, I get a maximum total exposure to Easter Europe loans of about €154bn.

    Now Austrian banks also own many subsidiaries in Eastern Europe and the equity stake is no doubt significant, but it can’t be categorized as “loans”.

    Am I missing something?

  55. Carlomagno

    On top of that, the 70% share of GDP doesn’t work out. €230bn is 70% of €328.6. Yet according to Eurostat, Austrian GDP at market prices is as follows (billions):

    2006 €257.3
    2007 €270.8
    2008 €283.9 (f)

    So call me a nitpicker, but I’m always suspicious when basic facts don’t square in a newspaper story.

  56. Anonymous

    Here is a good example of the entitlement mentality that bank shareholders and bondholders have:

    “Why, after all, should the taxpayer subsidize the shareholder or bondholder of a mega bank? You mean to tell me that these shares and bonds in which I have invested my savings – my 401(k) as well as my taxable account – over the course of my working life will now become wallpaper? I’d like to stick around for the chance to ride these shares and bonds back up. An expropriation down here might have – what’s the word? – revolutionary effects.”

    Dude, that’s crazy talk. The big banks are insolvent, and he wants a bailout of his risky investments. Every 10 or 20 years, there have been waves of bank failures, where lots of banks get thrown into receivership and worked out by the FDIC. There’s no reason his banks should be treated special just because they are “big”.

    Crazy, man. I’d like to see these bankers prove why Bagehot and his progeny were wrong in wanting banks to hold easily understandable assets, given that they are funded with short-term deposits? I’ll bet their prop trading only appears to add value and the prop trading profits are really attributable to the Fed’s implicit guarantee of their activities and the Fed’s discount window that lets them borrow cheap. Once you back out those 2 huge benefits, it wouldn’t surprise me if prop traders at the big banks created very little value add, especially after backing out their big bonuses.

  57. Anonymous


    This article discusses the looming Irish government default. And it reveals the bankrupt thinking permeating the EU and eurozone. The author can think of nothing better to conclude his article than to write:

    One possible solution would see Germany buy billions of euros of Irish government debt through a fund set up by the European Central Bank.

    This is the same mental retardation that thought securitized subprime mortgages and unrestricted “Free Trade” with a one-party ethno-chauvinist dictatorship (i.e. Beijing) was peaches and cream.

  58. Tortoise

    During the last year, I spent some time in Austria, Turkey, and Italy. What I saw was a good and improving standard of living. Not extravagant, with MacMansions and three SUVs per family. Instead, a sustainable lifestyle for a middle class that can save a decent portion of their income every year. They all have their problems but, on the basis of what I have seen, I trust that these countries will do OK financially. I would worry more about the UK or, say California.

    Frankly, a few of the comments in this thread are outright ugly and racist. How helpful are expressions like “non-producing parasites” and “insufferable arrogant blowhards” in describing whole nations? (What is the definition of racism?) They only show that there are unhappy people with an irrepressible need to feel superior. Anonymous, if that is your real name, get a glass of sangria and take it easy.

    I must agree with Timo on Ambrose. He is melodramatic and occasionally anti-European. But I enjoy reading his column. Call it a guilty pleasure.

  59. Anonymous

    You mean to tell me that these shares and bonds in which I have invested my savings – my 401(k) as well as my taxable account – over the course of my working life will now become wallpaper?

    I believe you have got it. If you’d been that alert earlier maybe you’d still have your chips.

    An expropriation down here might have – what’s the word? – revolutionary effects.”

    Let me calm your fears here. Real revolutions are made by young people with physical energy and drive behind them. Such as the young people whose future you propose to steal to make you whole from your own dullard conformity.

    Revolutions are not made by crowds of disgruntled and childless drooling old geezers upset they’ll have to trim back on their Carnivale cruises.

  60. Anonymous

    Frankly, a few of the comments in this thread are outright ugly and racist.

    I was waiting for this. The last refuge of the scoundrel parasite.

    No sale. It’s worn out shtick. Try again.

    If PIGS everywhere don’t like don’t like being called PIGS while shoving their snouts out for free food there’s a very simple path to general respect:

    1. earn their keep
    2. produce something useful they can exchange in trade at fair value
    3.Live within their means.
    4. Learn how to identify “financial leaders” of the Madoff type.”

    “Racist” is demanding people who study hard to learn truly creative skills and then work for their living to bail out a bunch credit card swiping no-talents.

    glass of sangria

    A first step on the long road to self-reliance is sobriety. Try it sometime.

  61. rtah100

    It is disappointing, and perhaps inauspicious for the geopolitics of 2009, that so many comments about AEP’s analysis are from a nationalist perspective. “My country’s economics, right or wrong.”

    I do not read that AEP preaches that the Euro will fail to teach Germans et al. a lesson; he simply points out that an unnatural economic union requires a political union to provide the glue of fiscal transfers (whereas a natural union, e.g. France and Monaco, does not, if only because it is a marriage of unequals and there is no question who is on top). If there is a nationalism to this, it appears to be in the reactions of Euro-zone commentators!

    I also do not understand why the UK is singled out as worse than its European counterparts. Look at the collapse in demand affecting China and Germany. Neither a borrower nor a lender be!

    To say that the UK is a failed state is a silly exaggeration (although it saddens me that after 12 years of NuLabour corporatism, it is closer to be being true than is comfortable). Nor is it a failed economy: we still have plenty of post-Imperial assets tucked away to sell, if need be.

    The big question goes unanswered amid the noise: who is going to pay to bail out the Eastern European extension of the Western European banking system, and on what terms?

    PS: Just to refine the debate on economic vs political union, Britain most certainly did not weld India into single economy. We set up the salt gabelle, to prevent Indian free trade in salt; we set up or expanded the pincely taxes on trade between Indian states (octroi) and we parcelled out great swathes of India to tax farmers (Zaminders), who held the right to tax for the Crown. We even built a giant hedge of thorns around Bengal to control trade! We were interested only in neutering Indian competition for British textiles, creating markets for our manufactures and exporing commodities.

    The examples of England, France and Rome are interesting, but did an army really enforce economic union or did the requirement to maintain an army (and to pay its soldiers) create the basis of a fiscal and currency union (a system of taxation and a currency in which both taxes and soldiers etc. had to be paid)?

  62. Anonymous

    It’s painful to see people in Easter Europe who took out mortgages in Euro or CHF, while being paid in their local currency. Their local currencies have lost 25 pc or more of value against the Euro since last summer, but their local salaries have remained unchanged.

    Another problem is the millions of manly Polish, Romanians, Hungarian, and Bulgarians currently employed in Western Europe, who are rapidly losing their jobs. These people used to send home tens of billions of Euros every year – they financed much of the development in their home countries. Thus, expect far less Euros to enter these countries this year.

    As a matter of fact, one of the reasons much of Eastern European currency have dropped last year is because of the decreased demand for that currency, now that less Euros are coming into these countries.

    Vinny GOLDberg

  63. Anonymous

    A few more thoughts…

    As far as the EU itself it concerned, as you may have heard me proclaim here before, I think it is doomed. The reasons I see are (and these are by no means exhaustive):

    1. Too many “Old Europe” nations are too nationalist and some even Fascist in mentality, thus a working political union will never be agreed upon. For instance, Austria is not very different now in mentality from the way it was before Hitler gave up his failed painting for politics, the feared Spanish Guardia Civil is largely the same (and just as oppressive) Fascist agency as it was when Generalisimo Franco first set it up, and Italy is now getting its wisdom and inspiration from Mussolini. These people never learn.

    2. Economically, even if we ignore the bankrupt Easter Europe, there remains Southern Europe (Spain, Greece, Portugal, and large parts of Italy) which have little to nothing to contribute to the EU except overpriced real estate properties, a Third World work ethic, and egos to measure. These nations are a greater weight on the EU than Eastern Europe is, as they also have gotten used to being paid German-level salaries and pensions in exchange for Zimbabwe-level productivity.

    3. Regarding Britain, if it is reluctant to draw closer to the EU that is because they see how failed an institution the EU is. Additionally, Britain stands to gain far more by drawing closer to the English-Speaking world, which at least already has a large, powerful, and fully integrated nation called the United States of America. Honestly, the UK would be better off to become the 51st US state than by staying in this EU.

    Regarding the WW3 remarks I read above, I don’t exclude it, although it may be some time before that takes place. A major war in Europe without Germany would just not be as much fun, so we may have to wait a few years while all those BMW and Mercedes factories retool to make tanks again. Also, I just don’t see Angela Merkel run the New and Improved Gestapo as efficiently as a German version of Sarkosy would (provided he takes his medication for ADHD in order to control his pathological impulses and irrational behavior).

    Having said that, I think I’m going to get in my favorite recliner at my sunny Florida home, and watch from afar the show that is about to unfold on the continent that until a few months ago was still preaching to us about “soft power”…lol

    Vinny GOLDberg (as proud an American as ever, btw :)

  64. Anonymous

    who is going to pay to bail out the Eastern European extension of the Western European banking system

    First, who can pay?

    and on what terms?

    And of this reduced group, why should they pay? I proposed earlier that Club Med offers nothing – zero, zilch, nada, empty set – that Germany needs and can’t better make for itself. This extends to the paper-flippers in Vienna and elsewhere who originated these eastern European loans. It’s a classic “heads I win tails you lose” proposition.

    Or does someone want to seriously propose these people would have shared the profits with the German taxpayers afterwards? Don’t make me laugh.

    Whereas Russia actually or potentially can provide nearly everything Germany does need.

    A two-way and mutually beneficial trade arrangement is possible between Berlin and Moscow. Having established mutually agreeable terms these two will proceed to reorder eastern Europe to their mutual satisfaction. They have done it repeatedly over three centuries. Maybe some lightbulbs are coming on about why it keeps working out that way.

    I haven’t heard anyone seriously contradict this proposition. There was one mendacious attempt to equate to “racism” a refusal to engage in a one-sided exploitative transaction.

    i.e. German workers paying every last deadbeat in Europe for nothing other than hearing their insults. Or perhaps in exchange for 10 minutes of the receipients’ refraining from empty accusations while they digest the extorted largesse.

    Now we can come to “political union” (EU) to enforce what are clearly one-sided transfer payments. This union can only assume an anti-democratic and anti-freedom character. A Stalinist model dictatorship is ideal. Otherwise the serfs will complain of their bondage and perhaps even end it.

  65. Anonymous

    As Yves as said, Ambrose, heretoafter, referrred to as AEP, is an especially ‘dramatic’ reporter. Yet he has been more on the money than most.

    My ‘link’ to “Naked Capitalism’ is frozen on July 21,2008. An AEP column entitled “Global Economy At Point of Danger!” Look it up.

    I ‘sort’ of know Ambrose. Back when he worked for Platt’s and did a lot of work on the Clinton/Dixie Mafia/Mena controversy.

    I was less enthusiatic about that as I was a plain old Jim and Susan McDougal/Whitewater sleaze is where you can prove it but Ambrose is a journalistic jewel. He cuts through the malarkey and gets right down to the nitty gritty. If the numbers don’t add up it is probably because the numbers are being cooked. The man has a beagle like nose and if it smells if finds out where the stench is coming from!

  66. Anonymous

    I don’t agree that Austria has nothing to offer Germany except bad debt. Let’s face it, Germany had to import their last known leader from Austria. The Germans are great at taking orders, building great machines, and marching in line. But they need Austrian leaders…

    Therefore, I propose Germany be annexed to Austria asap. Also, given another “mighty” Austrian is now running the state of California, I propose California be annexed to Austria as well.

    There! We have just rebuilt the Axis of Evil, version 2.0.

    Vinny GOLDberg

  67. Anonymous

    at the core this “problem” is the largest transfer of wealth from the wealthy (lenders) to the less well off (borrowers). It is for that reason that it is attracting so much attention of the powerful not because of the suffering that it is causing the average person; their plight has been ignored for years. It is to avoid the transfer of wealth which would be baked in stone with a nationalization of the banking system that the idea of nationalization is being avoided and all these schemes (Obama’s latest foreclosure prevention plan)are being put forward.

  68. Anonymous

    To say that the UK is a failed state is a silly exaggeration (although it saddens me that after 12 years of NuLabour corporatism, it is closer to be being true than is comfortable).

    I think any country seriously mentioned as a candidate for IMF rescue twice in one generation qualifies for consideration as a failed state.

    It seems to me Gordon Brown’s teflon immunity from political accountability for his performance as chancellor and then PM is acquiring Mugabe-like dimensions.

    Admittedly USA elites have equally avoided any genuine accountability for their tenures in office. But they’ve been more artful at presenting the form of it while covering their tracks as best they can. Brown otoh brazenly doesn’t even recognize a need to account for the results of his tenure, or acknowledge that any personal penalty should be paid for these such as resigning office. Just like Mugabe.

    Nor is it a failed economy: we still have plenty of post-Imperial assets tucked away to sell, if need be.

    Are you able to expand on this further?

  69. Anonymous

    nationalization of the banking system

    This is not Sweden and it’s not the early 1990s. And no evidence has been put forward that Nancy Pelosi, Barney Frank and Rahm Emmanuel will run a partisanly politicized USA state banking system any better than the crooks who’ve been running the existing state supported banking oligopoly.

    They are likely to run it more incompetently and corruptly than it has been operated up to now. The real fraud in Rod Blagojevich’s impeachment is the pretense the rest of the Chicago political establishment isn’t like him. The truth is they’re like him and worse .

  70. Anonymous

    I know we get tons of irony and schadenfreude amidst the otherwise superb caliber of comments to this essential blog. But to bring up the awesome thought of a WWIII in a casual, light-hearted and/or non-recoiling vein — not seeing in it the possible end of our species — seems at the least immature and at the worst … (supply your own adjective).

  71. Anonymous

    In real terms, adjusted for deflation, Japan’s gross domestic product fell 3.3 per cent on the previous quarter, or 12.7 per cent annualised.

    The US economy contracted 3.8 per cent in the same quarter and the eurozone economies together shrank by 1.5 per cent

    Looks like European ability to produce and consume what they produce makes some sense…

  72. Diego

    Please stop the racist comments.

    Most German banks would be happy to be in Spanish Santander’s or BBVA’s position, which are making a big profit despite the financial crisis.

    Lazy Greeks work 1800 hours per year (the same as the Japanese), some 500 hours per year more than hard-working Germans.

    Portugal and Italy specialized in textiles, and these weren’t the best times to make textiles. But they are slowly changing; e.g. Portugal’s research in renewable energy is world-class.

    Spain’s public debt is half Germany’s, and just 5 years’ ago it was German Bunds which had a positive spread compared to Spanish bonds. Many market participants are buying heavily into Spanish bonds, as they know the market is wrong again, and will turn a big profit in a matter of weeks.

    Being a racist is not good for your wallet.

  73. kynikos

    If I were Germany, I wouldn’t bail out any other European banks because they steal tax revenue from the German people. I would do it if the bank secrecy laws were all eliminated.

  74. Diego

    Vinny GOLDberg,

    the feared Spanish Guardia Civil is largely the same (and just as oppressive) Fascist agency as it was when Generalisimo Franco first set it up

    The Spanish Guardia Civil was not set up during Franco’s dictatorship, but in 1844, and it is just the Spanish equivalent for the French Gendarmerie. In fact, the only difference with the French Gendarmerie is that there are openly gay and even transexual Civil Guards. Talk about fascism!

    Economically, even if we ignore the bankrupt Easter Europe, there remains Southern Europe (Spain, Greece, Portugal, and large parts of Italy) which have little to nothing to contribute to the EU except overpriced real estate properties, a Third World work ethic, and egos to measure. These nations are a greater weight on the EU than Eastern Europe is, as they also have gotten used to being paid German-level salaries and pensions in exchange for Zimbabwe-level productivity.

    This is as absurd as it gets. You don't need a special skill to enter the EU, you just need to share some ideals, respect some common rules (unless you are France or Germany, then you can just change them when they don't suit you) and open your market.

    On productivity, ask Volkswagen or Mercedes-Benz why they produce in Spain, despite them being partly owned by German authorities who insist they must fire people anywhere but in Germany. You could also ask why EADS fires people in Germany while it expands hugely its production and R&D sites in Spain (despite Germans having a quarter of EADS shares and Merkel financing their sites there).

    On the first one: Spanish workers are far more productive than Germans, as they cost some 40% less, firing is almost free and you can hire temporary workers for total flexibility.

    On the second one: Germany lost its edge on carbon-fiber research to Spain more than a decade ago. Moreover, all the latest fiascos at EADS were made in Germany, in the UK and in France, in this order, while the Spanish subsidiary has consistently met all deadlines and requirements.

    Take this, multiply it by 100, and you will start to understand what is happening in Europe.

  75. Anonymous

    Being a racist is not good for your wallet.

    As I said, the last refuge of the modern scoundrel. But since you’ve chosen to introduce “race”, let’s talk about it a little bit in a way relevant to this crisis.

    Euros have fallen into the habit of blaming the USA for starting a chain reaction that is toppling their own rotted Rube Goldberg economic structures. We know the story, “subprime” blah blah blah.


    Oops. Not legally discussed in the EU or the UK. Or in Zimbabwe. Anyway, the US Government bipartisanly got over that. They shoveled out ever larger mortgages on ever easier terms to get rid of that vestige of “racism”.

    So shut-up and shovel out the money, racist gringo honkeys.

    Being a racist is not good for your wallet.

    Anytime that starts you can know you're in contact with a subprime person with a superprime
    appetite for other people's money. I give you Jaime Gorelick and Richard Syron as Exhibits A & B.

  76. Diego

    Anonymous 8:21,

    the last refuge of the modern scoundrel is commenting anonymously.

    If your racism had allowed you to read, you would have seen that your stats compare apples to oranges. From 92 to 96 the job market in the US was very different from the 96-99 period. You cannot compare what Hispanics did in the 92 with what the Whites did in the 96-99 boom, and then dirty this blog with your racist words.

    Bring us a true stat (that means correcting for income, age, location and house prices-year of contract) and stop making a racist fool of yourself.

  77. Anonymous

    Spanish workers are far more productive than Germans

    It’s reassuring to know that Spain can save itself solely by its own efforts and without taking one pfennig of German money.

    Out of curiousity, who is causing their gigantic trade and budget deficits? Gremlins? ET?

  78. Anonymous

    By Alan Zibel

    WASHINGTON — The nation’s foreclosure crisis is centered in four states. But taxpayers across the country will feel the pain of bailing them out.

    California, Florida, Nevada and Arizona generated about half of all foreclosure filings nationwide last year, according to RealtyTrac, even though residents in those states hold just a quarter of U.S. mortgages. Since mid-2007, skyrocketing foreclosures in those states have been magnifying the national rate.

    Guess that Associated Press report is just part of the white racist conspiracy to make Hispanics look bad. Don’t waste your gas, Diego. I’m immune.

  79. Diego

    Anonymous 8:39,

    Spain’s investment has been 30% GDP yearly over a decade now, compared to 20% in the UK, France, Germany and even Portugal. This 10% gap means more/better roads, railways, factories, universities, airports, etc. and is a leading indicator for productivity growth.

    This 10% gap explains the 8% current-account deficit. We were not spending in luxury cars and Nokia handsets more than the average European; but companies in Spain were investing in German machinery far more than the rest of Europe (because investments were more profitable here).

    So, unlike the UK and the US, we did invest those deficits instead of spending them.

  80. Diego

    Anonymous 8:58,

    wow, you’ve nearly convinced me with that stat! You’re really prodigious! So most of the failed mortgages are California and Florida? In the sunny, warm coastal areas?

    Who would have said that? I thought they would be in Kansas or Colorado, as everyone is moving in cold Mid-Western states where there is almost no land to build homes.

    Please, anonymous 8:58, read something about zoning laws, beach tourism (and white retirees), land scarcity, bubble psychology and Silicon Valley, then bring us a stat correcting for all of them.

  81. Anonymous

    Gee whiz, Diego. You asked me for location data so I gave you some. There’s just no pleasing some people. You want more specificity to localize this to Hispanics? Try Foreclosure Depot USA, a/k/a Cape Coral, Florida. Add Miami and Tampa.

    Check. We all know that 99.9% of Hispanic illegals in 1990s and 2000s went to Anchorage, Alaska, International Falls, Minnesota and Bangor, Maine.

    Nope. Not one in a thousand settled in California, Nevada or Florida. Must’ve been ETs. That’s why Wachovia, Wells Fargo, IndyMac and others started giving mortgages to applicants without valid social security numbers.

  82. Diego

    Anonymous 9:44,

    I didn’t ask you to locate Hispanics, I asked you for location-corrected stats. In fact, I told you to bring us a stat correcting for income, age, location and house prices/year of contract. Do it. I can assure you won’t find any meaningful divergence among different races.

  83. Anonymous

    Austria isn’t Iceland.

    We do have a diversified economy. There is export oriented industry, tourism and finance. Not that any of this diversification helps in a global recession. Tourism is still doing fine though.

    Raiffaisen is deeply connected to the austrian people’s party (conservatives). That explains Josef Prölls “frantic efforts” more than anything else. It also explains why the austrian governement choose loans and loan guarantees to banks instead of cleaning out the shareholders and nationalization.

  84. Anonymous

    The Bank of England faced a similar situation in 1797. Its solution was to suspend convertibility of the pound into gold, and to issue new pounds to any customer who offered adequate collateral in exchange.

    The result:
    “Looking back from the safety of 1798, ‘A Proprietor of Bank Stock’ thus summarized the transition: ‘In this desponding state, when all men dreaded, with the utmost anxiety, the event that was seen to be inevitable, and not far distant, and which it was supposed would involve the kingdom in general bankruptcy and intire ruin, the 26th February, 1797, was the crisis that gave the happy turn, and almost instantly dismissed all the horrors and fears that surrounded us; restored complete confidence…’” (Horsefield, 1944, quoted in Ashton and Sayers, 1953, p. 19).”

    –Mike Sproul

  85. Anonymous

    AEP my boy what a good job.

    You write about East Europe’s bankrupt banks and… surprise, surprise… Moody’s releases a nice report on the same subject yesterday.

    Mr Masafumi Yamamoto insists: “The financial turbulence in central and Eastern Europe is likely to persist,”. You can believe Mr Masafumi Yamamoto as he is head of foreign- exchange strategy for Japan at….Royal Bank of Scotland Plc

    Hurray, it worked! The Euro went down. But, no that’s impossible, our pound went also down big time…

  86. bb

    Austrian banks loan portofolios: 322bn, AEP's eastern european exposure (BIS number) 230bn or 71%. This is 1,900 euro per capita in a region where credit has extremely low penetration level, 30% of the population is retired, 30% are not earners, we get higher debt levels than in the u.s. lunatic numbers.




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